What are the shared responsibility penalties?
There are two potential ways employers can be penalized under the employer shared responsibility provisions of the ACA.
1. Penalty for not offering coverage
Employers with 50 or more full-time and full-time equivalent employees that do not offer minimum essential coverage to at least 95 percent of their full-time employees and their dependents are subject to a potential penalty if one or more full-time employee receives a premium tax credit or cost-sharing subsidy through a public health insurance exchange. The penalty is $2,000 per full-time employee per year, with the first 30 full-time employees excluded from the penalty calculation. Although the penalties are annual, they accrue monthly.
2. Penalty for offering inadequate coverage
Employers that offer their full-time employees minimum essential coverage may be subject to a penalty if one or more full-time employees receive a premium tax credit or cost-sharing reduction through a public exchange. By offering coverage that is "affordable" and meets "minimum value" requirements, an employer may be able to avoid penalties.
Note: Coverage is deemed unaffordable if the individual's required contribution toward the plan premium for the lowest cost self-only coverage is more than 9.5 percent of their annual household income. The IRS has proposed safe harbors for this calculation: employers may use 9.5 percent of their employees W2 wages, a rate of pay, or the federal poverty line. An employer sponsored plan provides minimum value if the percent of the total allowed costs of benefits provided under the plan is no less than 60 percent.
The penalty is the lesser of $3,000 for each full-time employee receiving the premium tax credit or cost-sharing reduction, or $2,000 for each full-time employee, excluding the first 30 full-time employees. Although the penalty is annual, it will accrue monthly.
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